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A Car Owner Must Decide Whether She Should Take Out

question 17

Multiple Choice

A car owner must decide whether she should take out a $100-deductible collision policy in addition to her liability insurance policy. Records show that each year, in her area, 17% of the drivers have an accident that is their fault or for which no fault is assigned, and that the average cost of repairs for these types of accidents is $1200. If the $100-deductible collision policy costs $100 per year, would she save money in the long run by buying the insurance or "taking the chance"? (Hint: Find the expected values if she has the policy and if she doesn't have the policy and compare them.)

Recognize how noncontrolling interests are reported in the consolidated financial statements.

Analyze the impact of stock transactions on the parent company’s investment in a subsidiary.

Understand the concept of consolidated financial statements and the necessity for eliminating intra-entity transactions.

Calculate the consolidated cost of goods sold in the presence of intra-entity transactions.

Definitions:

Cash Inflows

Money received by a business during a period of time, including sales, investment income, and financing.

Required Rate

The required rate, often referred to as the required rate of return, is the minimum expected rate of return on an investment deemed acceptable to an investor.

Unequal Cash Flows

Cash inflows or outflows over a period that vary in amount, which are crucial in investment analysis and capital budgeting.

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.